Spring 2007 - (Lang Michener Competition & Antitrust Brief )

Hardworking lawyers seldom get the chance to watch TV, or admit to it, but there is apparently a television show, starring a Canadian, in which the key decision is whether or not to take various deals on offer. Slightly less popularly known, there is a provision of Canada's Competition Act, the refusal to deal provision, which has also generated a little excitement recently as a result of the B-Filer decision.

The refusal to deal provision allows firms which have been refused supply of a product to apply to the Com­petition Tribunal for an order that they get supplied. Amongst other preconditions for such an order is a requirement that the person seeking the order is substantially affected in their business or precluded from carrying on business due to the inability to obtain supply, that the reason for the inability to obtain supply is that there is insufficient competition, and that the refusal to supply had an adverse effect on competition. Until 2002, only the Com­mis­sioner of Competition could seek orders relating to refusal to supply, but since that time parties who have been injured have had the right to do so, and twelve cases have been launched. Only the B-Filer case has resulted in a decision, and it is now under appeal.

B-Filer's business allowed customers to pay Internet merchants by debiting the customer's bank account. The majority of B-Filer's business involved money transfers to fund on-line gaming accounts at casinos outside Canada. To operate its service, B-Filer relied on the supply of certain financial services with major banks. To use B-Filer's service, customers had to provide their confidential bank code to B-Filer. Ultimately, that turned out to be an important fact for the Tribunal.

The Competition Tribunal turned down B-Filer's application for a number of reasons:

B-Filer's business actually grew during the period of refusal to supply – but B-Filer argued it grew less than it would otherwise have. The Tribunal found that the loss of potential growth could constitute a relevant affect for the purposes of the provision, but in the particular case it concluded that B-Filer had not shown that the refusal to supply led to the impact.

The Bank may have had a good business justification (involving concern about B-Filer obtaining confidential information) to overcome the argument that the reason B-Filer could not obtain adequate supply of a product was insufficient competition.

The Tribunal had to compare the state of competition in the market that would have existed but for the refusal to deal with that which actually existed with the refusal to deal. In the B-Filer case, it concluded that B-Filer failed to prove an adverse affect on competition.

Finally, the Tribunal noted that it has discretion as to whether or not to make an order, and in this case, because of its concern respecting the sharing of confidential banking information, the Tribunal would have exercised its discretion against making an order, even if it had found that the necessary elements were present.

This is the first of the private refusal to deal cases which has been heard on the merits, and the decision is unlikely to encourage a flood of additional applications. That said, the facts of the case were peculiar. A key question, which remains outstanding, is whether the Tribunal will be sympathetic to respondents whose business justifications for discontinuing supply are related to the relatively common desire to re-structure distribution agreements – to be more efficient or compete more effectively. The Tribunal was clearly sympathetic to the Bank's justification for cutting off supply to B-Filer, both in finding that the reason B-Filer could not obtain supply was not due to insufficient competition, and also in including that it would have exercised its discretion in favour of the Bank in any event. However, the facts in the B-Filer case were un­usual. How the Tribunal will react in the more usual situation of a supplier simply seeking to re-structure its distribution arrangements will be important to the future course of refusal to deal litigation, and for the ability of Canadian firms to ensure that their distribution systems are efficient.